Barclays to defer 60pc of bonuses

The president of Barclays, Bob Diamond, has revealed that the bank will defer
up to 60pc of its bonuses this year as it attempts the "change the
narrative" on the financial crisis away from pay and on to the
retention of strong performing banks in London.

By Kamal Ahmed

9:46PM GMT 12 Dec 2009

In a wide-ranging interview with The Sunday Telegraph, Mr Diamond admitted that banks had made mistakes in the past, said that bonuses had to be better controlled with more remuneration paid in fixed income.

Bob Diamond is attempting to 'change the narrative' of the crisis

He also argued that although banks should not be split between investment and retail it was important that no institution was "too big to fail".

In a tacit admission that the taxpayer should not have to pick up the tab for failing institutions in the future, Mr Diamond said: "In principle we should not have institutions that are too big too fail or too complex to fail.

"We need a regulatory framework that allows us to address failing institutions. Big and systemic are not synonymous and big and failure should not be in the same sentence.

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"We feel strongly that Barclays and others that have the integrated universal banking model, if we took that away it would add risk to the system, it wouldn't take risk away."

Although Mr Diamond refused to comment on specific bonus arrangements, it now seems highly likely Barclays will announce that its senior directors will not receive cash bonuses this year or if they do they will be small.

The move follows Goldman Sachs announcement last week that its management committee, made up of its most senior staff, would receive no cash bonuses and that bonuses would be paid in shares that divest over a number of years.

Asked whether he would taking a bonus this year, Mr Diamond said: "I don't think it's an appropriate question for me to talk about my own bonus. I think what is clear is that we quickly adopted the G20 and Financial Security Board principles which are in line with what the FSA and the Treasury [wanted]. And clearly that raises deferral levels. So deferrals going from the 24pc level to the 40-60pc level is broadly what's there and we support those principles. You will have higher deferrals.

"We've [the banking sector] done a pretty poor job of managing how the process [for bonuses] works. You saw us make some changes to base salaries. We do agree that many functions should have a higher portion of fixed and a lower portion of variable."

Mr Diamond, who was paid more than £20m in 2007, waived his bonus last year.

The Barclays president said that there was a danger that an "unlevel playing field" would damage the UK's standing in the global financial markets. He said that strong banks were vital to the British economy and that the country "should be proud" of the UK's three global banks that did not take direct support from the Government - Barclays, HSBC and Standard Chartered.

"Clearly there were mistakes made and I've made mistakes," Mr Diamond said. "This isn't about anyone saying I don't have to be part of the solution. It is quite the opposite, it is about saying I do want to be part of the solution but I think being part of the solution is banks and regulators working together to bridge the gap between a safe and sound financial system and an economy that is growing and creating jobs.

"I think that to say we can do that without strong banks who are confident and willing to take risks and willing to invest in businesses and willing to help their clients, both domestically and across borders, we won't create the type of economic growth that we want."

There is growing anger in banking circles at what is seen as unfair Government targeting of the whole sector rather than those – such as RBS and Lloyds Banking Group – that received direct taxpayer money. One leading banking executive described Chancellor Alistair Darling's announcement last week of a "supertax" on all bonuses above £25,000 as a "kick in the balls".

Yesterday those fears appeared to be realised when Josef Ackermann, chief executive of Deutsche Bank, said that Germany now had a "comparative advantage" over London as it did not plan to raise taxes on the finance sector.

Mr Ackermann and Wolfgang Schäuble, the German finance minister, said that German financial institutions including Deutsche Bank, Commerzbank AG and Allianz SE, agreed to uphold the G20's pay principles rather than resort to new taxes.

Joachim Faber, CEO of Allianz Global Investors, said the crackdown on compensation by the UK contravened the call by the G20 to ensure regulations are co-ordinated across borders.

"We have to make sure that we act in a coordinated way," Mr Faber said at a conference in Berlin yesterday. "It seems to me a little disturbing on compensation [the moves in Britain]. It looks like a new field of competition has opened."

Mr Diamond said that different regulations in different countries would lead to "regulatory arbitrage" with money and talent moving to different areas depending on the regulatory regime.

"In my view, the world needs both London and New York as big, successful financial centres," Mr Diamond said. "I don't think there is any city in the world that has been more of a symbol of global trade than London, and London has also been a very big beneficiary of its status as a global trading centre."